Anyone familiar with financial markets should get used to their paradoxical nature. If the slowdown in employment growth in the US seemed to have irrevocably deprived investors of hope for the Fed's announcement to taper QE in September, the slowdown in inflation, on the contrary, revived this hope. Forex began to actively argue that the Fed will take into account not a single report, but a set of data. As a result, EUR/USD bears managed to finish the week of September 17 with a shield.

Whether they will be on the shield five days later will show the Fed meeting and the release of data on European business activity. Many people try to explain the stability of the euro against the background of a pronounced divergence in monetary policy by the outpacing dynamics of the currency bloc's GDP compared to its American counterpart in the second and third quarters, as well as the better epidemiological situation in the euro area than in the US. Nonetheless, history shows that a slowdown in China's credit momentum is bad news for the eurozone PMI. As early as September, the indicator may present an unpleasant surprise for EUR/USD bulls. If COVID-19 is really seasonal in nature, then the increase in the number of infected in Europe will finish off the euro.

Dynamics of the credit impulse in China and the ratio of PMI in Germany and the USA

The key event of the week of September 24 is the Fed meeting. While the financial markets are racking their brains over whether the Fed will announce the tapering of QE or not, something else is much more interesting for me personally. How will the committee's forecast on rates change? In June, 7 of its members were expecting an increase in 2022. I believe that their number will increase significantly, and this will be a "hawkish" surprise and the basis for further sales of EUR/USD.

FOMC Federal Funds Rate Forecasts

How quickly the Fed gets rid of QE will determine the future dynamics of Treasury yields and the fate of sensitive currencies and other assets, including USD/JPY and gold. However, this is only part of the equation. Debt rates will rise as soon as Congress suspends the public debt ceiling, which will allow the Treasury to increase bond issues.

In my opinion, everything necessary for the start of the normalization of the Fed's monetary policy is already there. Strong retail sales statistics confirm Jerome Powell's thesis that the US economy has adapted to the pandemic. A significant number of vacancies suggests that the labor market will recover very quickly in 2022. At the same time, maintaining inflation at elevated levels will force the Central Bank to aggressively raise rates. All this creates a favorable environment for the growth of the US dollar in the medium and long term.

Technically, the inability of the EUR/USD bulls to return the quotes above the pivot points at 1.179 and 1.18 is a sign of their weakness and a reason for selling. The reason for the formation of short positions in the direction of $1.1715, $ 1.168, and further down may be the fall of the euro below the lower fair value near the $1.1755 mark.

EUR/USD, Daily chart